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Income Taxes
9 Months Ended
Sep. 30, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company generally estimates its annual effective tax rate for the full fiscal year and applies that rate to its income from continuing operations before income taxes in determining its provision for income taxes for the respective periods. The Company generally records discrete items in each respective period as appropriate. However, if a company is unable to reliably estimate its annual effective tax rate, then the actual effective tax rate for the year-to-date period may be the best estimate for the annual effective tax rate. For the three and nine months ended September 30, 2015, the Company determined that the annual rate method would not provide for a reliable estimate due to volatility in the forecasting process. As a result, the Company has recorded the provision for income taxes for the three and nine months ended September 30, 2015 using the actual effective rate for the three and nine months ended September 30, 2015 (the “cut-off” method). The effective tax rate for the three and nine months ended September 30, 2015 was calculated based on an actual effective tax rate plus discrete items, as described above.
The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2015 was (5.5)% and 8.8%, respectively. The Company’s consolidated effective tax rate for the three and nine months ended September 30, 2014 was 17.7% and (7.0)%, respectively.
The Company’s estimated effective tax rate is subject to fluctuation based upon the level and mix of earnings and losses by tax jurisdiction, and the relative impact of permanent book to tax differences (e.g., non-deductible expenses). As a result of these factors, and due to potential changes in the Company’s period to period results, fluctuations in the Company’s effective tax rate and respective tax provisions or benefits may occur. The Company is subject to U.S. federal income tax, various state income taxes and various foreign income taxes. The effective income tax rate for the three and nine months ended September 30, 2015 and 2014 reflects various foreign income taxes.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in this assessment. Management believes the Company will achieve profitable operations in future years that will enable the Company to recover the benefit of its U.S. net deferred tax assets. However, the Company does not have sufficient objective evidence to support the future use of certain deferred tax assets related to foreign tax credits, and accordingly, has established a valuation allowance against this deferred tax asset during the three months ended September 30, 2015 of $0.8 million as required by generally accepted accounting principles. Recording this valuation allowance does not impact the Company’s ability to realize the benefit of this asset.
Additionally, during the nine months ended September 30, 2015, the Company recorded a reduction of previously recognized income tax benefits primarily related to stock disqualifying dispositions of $2.0 million.
The Company permanently reinvests cumulative undistributed earnings of its non-U.S. subsidiaries in non-U.S. operations. U.S. federal income taxes have not been provided for in relation to undistributed earnings to the extent that they are permanently reinvested in the Company’s non-U.S. operations. As of September 30, 2015, the undistributed earnings of the Company’s foreign affiliates was $8.4 million.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense when assessed.